Turning Post-Sale Service into Profits

It was never easy to find a part at Juniper Networks. The manual process the company had in place was tedious and time-consuming, and more often than not the parts were not on the shelf.

"We didn't have all the right parts in all the right places. Delivery [service] was dismal," says Steve Blaz, VP of global service operations for Juniper, a Mountain View, Calif.--based IP networking provider. "We knew we needed to automate because the manual process we used wasn't working very well."

Last winter, Juniper deployed a service parts management solution from Servigistics, an Atlanta-based firm that helps companies such as Juniper better manage its service parts and improve post-sale service. Once viewed as a "necessary evil," post-sale service is now being embraced as a revenue generator. "The service [provided] after the initial product delivery is strategic to overall growth," says Gary Brooks, VP of alliances and marketing for Servigistics. "We're seeing a fundamental shift. We're seeing companies starting to invest in post-sales service and looking at it as a new source of revenue."

This new approach to post-sale service is referred to as strategic service management. From silicon chip equipment provider Axcelis Technologies to computer giant Dell, thousands of companies have billions of dollars tied up in service parts inventory. But few have learned how to manage their service departments--and the parts they use--with the same efficiency that characterizes their supply chains or factories.

Studies have shown that 25 percent of manufacturers' total revenues and 50 percent or more of their operating profits come from post-sale service. "Companies are beginning to see the value of focusing on service," says Amit Jain, a research director at Boston-based research firm AberdeenGroup and author of a May 2007 report "Strategic Service Management: Moving Beyond the Tactics."

The report reveals that forward-thinking companies actively leverage post-sale service to drive revenue, profit and customer retention. "Forward-thinking companies have moved away from managing service as a tactical cost center to managing it as a strategic profit center," states the report. "Companies that continue to ignore the core principles of Strategic Service Management will in the next five to seven years not only forfeit significant growth opportunities, but may increasingly become irrelevant in the marketplace."

The report finds that best-in-class companies derive 75 percent higher revenue and 111 percent higher profits from their service operations than other companies. These companies also are three times as likely to report customer retention rates greater than 90 percent and also to achieve an SLA compliance rate greater than 90 percent.

Aberdeen research concludes that companies deploying best-in-breed service-specific point solutions have, on average, realized higher performance gains than those that implement service modules of ERP and CRM solution providers.

"One of the key things that jumped out at us is that Best-in-class companies are taking a more profit-centric approach [to service]," Jain says. "All the focus used to be on the product before the sale -- things like product development and manufacturing. Post-sale service was an afterthought. But over the last decade, there's been a transition. Profit margins have shrunk, there's more competition and companies are looking for ways to grow their business. That's when the Best-in-class companies looked at [post-sale] service and said, ÃƒÆ'Ã†'ÃƒÃ.‚¬ÃƒÆ'Ã.‚¬Å¡ÃƒÃ‚.ÃƒÆ'Ã†'ÃƒÃ‚.ÃƒÆ'Ã‚.Ãƒ.Ã.‚¬Å¡Ã‚¬ÃƒÃ‚¡ÃƒÆ'Ã.‚¬Å¡ÃƒÃ‚¬ÃƒÆ'Ã†'Ãƒ.Ã.¬Ã‚¹ÃƒÆ'Ã.‚¬¦Ãƒ.Ã.¬Ã "let's see if we can get something from that.'"

From Mediocre to Magnificent
Before implementing Servigistics' Service Parts Management solution, workers at Juniper Networks used a manual system with two spreadsheets to manage service parts. And when searching for parts, workers looked in several places to cross reference.

Servigistics' Web-based solution scans data on stock levels, parts costs and sales across various locations, and generates guidelines on the amount of stock to reorder and the price. Deployed across Juniper's 180 distribution centers, the Servigistics solution integrates with a call tracking system, ERP system and procurement solution. Juniper also built a service-availability tool to determine whether technicians can service a specific area.

"In three to six months, we started seeing results," says Blaz. "We started seeing on-time deliveries increasing dramatically, and our contract renewal rate has increased. The service part of the business grew almost three times as fast as the company grew last year. A big part of that was that service improved so dramatically and efficiently, people said, ÃƒÆ'Ã†'ÃƒÃ.‚¬ÃƒÆ'Ã.‚¬Å¡ÃƒÃ‚.ÃƒÆ'Ã†'ÃƒÃ‚.ÃƒÆ'Ã‚.Ãƒ.Ã.‚¬Å¡Ã‚¬ÃƒÃ‚¡ÃƒÆ'Ã.‚¬Å¡ÃƒÃ‚¬ÃƒÆ'Ã†'Ãƒ.Ã.¬Ã‚¹ÃƒÆ'Ã.‚¬¦Ãƒ.Ã.¬Ã "Yeah, that works,' and continued to purchase new contracts."

A Reputation to Protect
Dell executives attribute Servigistics' Service Parts Management solution with helping the company uphold its noted reputation for excellent customer service. The Fortune 500 company turned to Servigistics to help it fulfill more than 2 million same-day service level agreements. Based on demand and customer geographic density, Servigistics regularly updates Dell's parts forecast to ensure the right parts are at the right location. Servigistics also runs a 24/7 centralized parts data center for Dell, which users access via the Web.

"Dell is maniacal about the way it delivers service," Servigistics' Brooks says. "When something breaks, they make sure whatever needs repair is fixed that same day." The Servigistics solution helped Dell grow service revenue by 20 percent in one year.

The successes of Dell, Juniper Networks and other large corporations with strategic service management is prompting other companies to develop strategies to turn their service departments from black holes into savings leaders and profit centers.

"We have started treating our service operations like a business," says Kurt Bradtmueller, director of Panasonic Factory Solutions Company of America. "The word profit center was not in our vocabulary before--now it is. We did not have an annual business plan before--now we do. It has all to do with the mindset." //

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